ESG Reporting Study With Darden School of Business

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ESG Reporting Study With Darden School of Business

ESG (environmental social and governance) reporting is no longer an option.

Not only are investors increasingly showing that ESG reporting important information is needed to make financial decisions, but governments are also beginning to require this information. The SEC recently moved forward rulemaking to make elements of corporate ESG data reporting required for publicly traded companies, and California’s senate passed SB 260 which will make climate disclosures required for companies with $1 billion or more in revenue.

With this much focus on ESG disclosures and sustainability reports, though, where are current companies in their commitment to ESG criteria? Do their corporate governance practices align with what they need for ESG performance, and do they have what they need to step away from ESG factors and instead work with fully auditable data?

This is what we decided to study alongside students at the Darden School of Business. The results of our survey are in, and we’ve learned that while ESG information is becoming more standard, companies still aren’t fully ready to assess climate risks and carbon emissions through ESG reporting. This aligns with what many other researchers and thought leaders in the ESG reporting space are finding too.

The Darden ESG Reporting Survey

Along with the Darden School of Business, we sent out an anonymous survey to fellow leaders in the ESG reporting space. From our outreach, we received 49 responses that led to more insights into audit committee structure, ESG reports, and ESG reporting standards.

Industries Represented

We know that ESG reporting, especially around energy efficiency, affects financial market participants in a variety of industries. Our sample ultimately consisted of constituents from groceries, healthcare, universities, utilities, commercial real estate, tech, professional services, hospitality, and manufacturing.

Most companies represented were larger – they had over 100 employees with more than 50 locations. However, there were still some smaller companies that participated.

Institutional Function

We received responses from people with roles all over the corporate map. Individuals in finance, operations, sustainability, strategy, the C-suite, and third-party service providers filled out our survey and had insights about their company’s ESG reporting.

This shows that ESG practices rely on many different business relationships. Siloes are breaking down – ESG reporting is no longer just in the realm of the C-suite, or just for the people working with equipment like technicians and facility managers. Many people are involved with the process and have insights to share.

ESG Climate Related Financial Disclosures

We mentioned that ESG reporting is becoming more standard as companies realize the principal risks related to not having needed ESG information available to investors and governments. However, we were still surprised to find that many companies that we surveyed do not have ESG reports.

About half of our respondents had an ESG report. The other half did not, or did not know if they had one.

This reveals that while we may be making progress in making climate related financial disclosures and corporate social responsibility more mainstream in capital markets, there is still a long way to go to make sure most companies have strong ESG performance. Sustainability risks and ESG issues as they relate to business practices are still not understood by everyone, and many companies still have a long way to go in reporting how their business ethics relate to climate change.

Third-Party Review

One thing that is coming out of increased legislation around ESG reporting and sustainable development when it comes to business is a need for third-party review. External stakeholders want to make sure that the environmental performance being reported on in a business strategy are actually verifiable where ESG stands. Qualitative disclosures and fluffy marketing material are no longer enough.

More than a quarter of our respondents are using third-party review in their annual reports. Clearly, having some professional advice on environmental impact and human rights as they relate to business models is taking hold. However, there is still room for improvement here to make sure companies, especially listed companies on the stock market, are following proper disclosure obligations around their ESG efforts.

Global Reporting Initiative, CDP, or Something Else?

When it came to what respondents are using for a reporting framework, the results were mixed. No one standard outweighed the other. There was a mix of the Global Reporting Initiative, CDP, SBTI, and other frameworks.

This shows standardization is still something that needs to happen within ESG reporting. Companies aren’t following a single non-financial reporting directive. For ESG scoring, there is still a variety in what is being used.

More preparation is needed

Overall, our survey results found that there is more preparation needed in ESG reporting to meet new standards. Most concerning, this is especially true for large companies that will be most impacted. Respondents in transport refrigeration, commercial refrigeration, and quick service restaurants were the most underprepared for ESG reporting, even though ESG should be a key focus for them to manage risk.

Less prepared, less involvement

Another insight we garnered from our survey is that the less a company is prepared for ESG reporting, the less employees are engaged with the process regardless of role. Even people in the C-suite, such as CEOs, are not engaged with ESG information in companies with a low awareness of ESG. While they may eventually need to be more involved and aware of ESG undertakings, they’re currently not making informed decisions around ESG.

Need for more standardization and governance

Overall, this survey shows that there is a need for more standardization and governance around ESG reporting for companies to have a fully competitive advantage when it comes to their ESG scores. ESG reporting may be becoming more standard, but how companies are going about it still needs to be standardized, and there needs to be more support at every level of a business to take charge of internal controls overseeing ESG – a company’s performance around ESG can no longer be delegated to a single task force or a separate legal entity.

These findings are similar to what others in the industry are also writing about. Many are taking to creating their own standards they hope more people will adopt, and are advocating for better governance from the C-suite down to help the future of ESG reporting.


hands holding a transparent globe


Sustainability Accounting Standards Board

One initiative working to better standardization is the Sustainability Accounting Standards Board. There are three main frameworks for ESG reporting – GRI, CDP, and SBTI. But even among these, there are differences, and companies are split on which one they are using.

The Board looks to further standardize the data that companies are using to increase ESG performance. Unlike other standards, it looks at different industries and the nuances of each industry to define the materiality of sustainable activities. It uses this industry-specific lens to define what needs to be reported for Scope 1, 2, and 3 emissions.

This may sound good at first – it gives companies a better scope to work from, and provides more standardization than we previously had. However, as we saw in the survey, we need companies to actually commit and decide what will work with them. Standardization can’t work without companies stepping up and working toward better, more auditable data.


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Principles for Responsible Investment

Of all the external stakeholders looking at ESG data, investors are among the most frustrated with the current lack of standards. They need to compare companies, and that is difficult when there aren’t standards to rely upon.

This has led to the creation of Principles for Responsible Investment. This actually started not out of the investment community, but out of the UN. With their focus on a human rights perspective, they combined forces with the world’s largest investors to create the standards.

There are six principles identified:


  1. We will incorporate ESG issues into investment analysis and decision-making processes.
  2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
  3. We will seek appropriate disclosure on ESG issues by the entities in which we invest
  4. We will promote acceptance and implementation of the Principles within the investment industry.
  5. We will work together to enhance our effectiveness in implementing the Principles.
  6. We will each report on our activities and progress towards implementing the Principles.

The number of signatories is continuing to grow, and the number of assets owned by signatories continues to increase as well. Companies that don’t have ESG standards in place will be unable to show these investors what they are looking for.


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Impact Weighted Accounts

Harvard Business School is also working to create more standardization around ESG reports to manage risk through their Impact Weighted Accounts Project. The mission of this project is to “drive the creation of financial accounts that reflect a company’s financial, social, and environmental performance” and “create accounting statements that transparently capture external impacts in a way that drives investor and managerial decision making.”

The project operates under the assumption that capitalism and globalization are successes and that they should continue, but that their are such risks as climate change and humanitarian crises in this continuation. This means industry must shift from negative impacts to positive impacts.

As part of their methodology, the project looks to the financial world, which has standards such as GAAP. However, these same standards don’t exist for communicating the positives and negatives of company’s environmental and humanitarian impact.

Creating standardization includes the following design principles:

  • Scope of source impact – for this, they begin with a small set of standards, then look to grow them over time
  • Scope of stakeholders included in impact accrual – they begin with a few stakeholders to test, then grow the scope over time
  • Specificity of impact metrics – they create specific metrics that can be used across industries
  • Monetization of impact metrics – they make sure all impact metrics can be measured in dollars
  • Scope of value – they make sure impact is accurately measured so that it can have value

Harvard Business School acknowledges that while the goal is standardization, standardization won’t be perfect. They point to GAAP and other financial metrics, though, noting that there is also grey area and room for interpretation with those metrics as well. They note that it is better to start with standards and grow from there rather than having many different voluntary standards that do not lead to customer satisfaction, investor satisfaction, and the satisfaction of others relying on ESG reporting.

The Issue of Governance

In addition to the issue of standardization that our research uncovered, we also found that there was an issue around governance. It’s not always clear who owns ESG in a company, if anyone owns it at all.

Companies need a better understanding of who is spearheading initiatives, and how those initiatives are trickling down to the rest of the company. It’s no longer enough to simply have a singular task force or a few people who are pursuing ESG practices as a passion project. Governance around annual reporting for ESG must be baked into the company.

The Role of the CFO

Increasingly, we are seeing that the role of the CFO is where governance starts for ESG reporting.

In an article for Accenture,  Eric Noren, Managing Director of Strategy and Consulting and Annie Peabody, Managing Director for Strategy and Consulting, CFO and Enterprise Value make the case for why CFO’s should be leading corporate governance for ESG reporting. Noren and Peabody argue that ESG reporting is a natural extension of the CFO’s duties. They have always conceptualized a business through metrics and numbers. This is just another set of them.

As part of their role, CFOs should create a framework of risk and regulations that allow the C-suite to take control of ESG so it is coming from a central place. From there, initiatives can trickle down to the rest of the company. This framework and governance must be as rigorous and methodological as financials and governance around them.

Ultimately, though, the authors note that “ESG is a journey without an end.” Just like financial metrics evolve and are refined over time, the same must happen with ESG criteria and metrics. However, this is much easier when there is clear governance in place and metrics are being set by a central entity.

Where We Go From Here

Both our research with Darden School of Business and existing thought leadership show that while ESG performance is in a better place than it was even ten years ago, there is still much room for improvement. While some companies have ESG reports, many still don’t and are starting from the bottom. Even for those that have reports, there are still issues of standardization and governance.

We plan to continue our research, especially in light of recent legislation such as California’s SB 260 and rulemaking by the SEC. Large companies will need to ramp up and prepare for more stringent reporting around climate, and this may change how mature they are when it comes to ESG reporting.

Join Us For An Open Mic

We’ll be talking more about our research and answering questions at our open mic on June 9 – join us then!

You can also download our handout on the results of the Darden survey to share our insights with others.

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